What emergency fund you ask? Well, remember the $1000 you put away in Baby Step One? Yeah, that emergency fund. Well now it's time to finish it.

Here you are going to incorporate the same skills you used to pay off your debt to put away six months of living expenses.

How do you know how much six months of living expenses is? Well, figure out what it would take for you to live with no income for one month then multiply it by six. This would include things like mortgage, utilities, food, gas for your car, etc.

Take the $1000 you put away and just as aggressively as you attacked your debt I want you to sock that money away for this emergency fund.

What do you do with it as you are getting it together?

Put it in an easily accessible place like a savings or money market account. This is not, I repeat is not for investment. Your objective is not to make money off this account but to have money put away for a rainy day that you can get to in an emergency.

"Money magazine says that 78% of us will have a major unexpected event in our lives within the next ten years."

Without this emergency fund in place, all the hard work you put into getting out of debt is in jeopardy. Without that money it is very likely you will reach for a credit card to save you. And who could blame you. Don't let that happen. Get that emergency savings fully funded.

So what does an emergency look like which warrants tapping into this money?

Things like medical emergencies, the loss of a job, a blown engine in your car, etc.

What it isn't is that dining room set you've had your eye on that just went on sale at 50% off.

According to Dave's research, "a poll in Parenting magazine said that 49% of Americans could cover less than one month's expenses if they lost their income."

How many months could you cover?

Okay, that is the gist of Baby Step Three, but of course, like always, please refer to Dave Ramsey's website and books for more specific details.

Next week, Baby Step Four!Click Here to go to "Get Out of Debt - Part 9."

7 comments:

Oh I soo need an emergency fund. We have too often used our credit card for unexpected costs. I have read a person should always have MINIMUM $1000 in their savings. I think i have 1$. :s time to work on that

Great post! I personally have over a year's worth of living expenses saved up. It was amazing to pay for my entire wedding entirely up front and have no debt at all, and to still have a very healthy e-fund afterwards. We even splurged on a wonderful honeymoon! But I know there are so many people out there with no savings and they have to live off of credit cards just to buy food...

I love Dave Ramsey!! We went on his total money makeover about a year ago. We are sloooooowly getting out of debt. Some days it seems like we make no progress, but we aren't adding to it, so YEA!!!! It is hard to do on 1 income, but budgeting EVERYTHING helps!!Thanks for the encouragement!

Man do I love Dave Ramsey. And Larry Burkett. My husband and I have just recently cralwed out of the majority of "his" debt so now we can start focusing on "my" debt. It IS an amazing feeling. The down side to debting your credit score in the crapper is how it affects you mentally and the clean up process you have to go through to pick up the pieces, but the up side (and there really IS one) is that (for us) we were no longer ABLE to use credit. So it automatically removed the temptation for us! We couldn't use a credit card now even if we wanted to! And we never will again. =)

Congrats to you for reaching 20%. LOVE this blog and I will be back!! =) (Thanks for stopping by my place. =))

About Me

I'm exploring, navigating and dreaming about how to live a more self-sustaining life through suburban homesteading and frugal living. Finding my balance and fullfilling my passions by blogging about living the American dream in todays world at Just An All American Girl, building a financially rewarding and fulling business through Arbonne and making the world more beautiful at Gypsy Road Salon.